Will the Multi-Polar World be Backed by Gold?

The basic thesis is that the U.S. and China are headed for a mostly amicable divorce of their economies, a disentangling as it were.  

And that that would then allow for the emergence of the so-called multi-polar world that both Russian President Vladimir Putin and Chinese Premier Xi Jinping are working towards. 

China, on the other hand, has only in the past couple of years joined Russia’s party of announcing its gold buying on a monthly basis. Previously, China would simply drop a 500-600 tonne bomb on the markets and see what would shake out of it. 

It’s easy when looking at these trends that something big may be on the horizon, that gold is on the verge of being re-monetized and a major shakeup to the world financial system is imminent.

If you count the estimated 16,000 tonnes held privately in China and that was convertible into currency that would still only get China up to 12.2% backing of M1 with gold. 

Russia is the closest there is to a gold-backed currency there is. 

The ruble by that metric (M1) 84.0% backed by Russia’s official gold reserves!

DYI:  Any wonder why all the Russian talk??  At 84% and climbing the Russian Ruble is now a hard currency [the U.S. dollar in not] by any definition so much so, in time they just might displace the Swiss for the top spot.  For myself I’m looking [after I’m finished with this post] for a Russian bond mutual fund.  With such a hard currency if the U.S. decides to print their way out [a likely event] of economic trouble hard currencies is a great place for one’s money.  Not within the scope of DYI’s model portfolio just something I’m looking into gold [hard currency] portion of my savings.     

That is an eye-popping number and it tells you that the Russians have very prudently saved over the past fifteen years or so. They have built what we Austrian economists like to call a ‘pool of real savings’ to lever into higher order investments.

Russia is now ready to deploy a significant part of its trade surplus and even some of its pool of real savings to build new and needed infrastructure for Russia. Putin mentioned in his annual 4-hour direct line that he was ready to begin spending some of Russia’s oil revenues, drifting away from neoliberal and monetarist Alexei Kudrin and towards the nationalist/Keynesian Sergei Glazyev.

To sum up, what killed Bretton-Woods was the same thing that killed the British pound post-WWI, a refusal to price gold accurately by the governments printing the money. Britain could have kept the gold standard and more of its empire had it re-valued the pound to reflect the money supply in 1918. 

It didn’t and it destroyed the British post-war economy. 

The same thing is happening now. 

And the U.S. will either have to allow the world’s assets to plunge by 50-90% or allow the price of gold to rise to reflect the amount of money in circulation [DYI most likely a combination].

DYI:  What my hope for the Russian people is for Putin to have gold reserves at 120%.  At 120% this leaves plenty of room for recessions/depressions, national disasters etc.  In other words that extra 20% for when the crap hits the fan the Russian federal government has the gold/money to swing quickly into action dealing with problems that always spring up at the wrong time.

Federal government become debt free – not difficult as the central banks last reporting debt was only 20% of GDP – AND their political subdivision debt free as well [Putin has pushed hard in this direction].  Flood the Russian people with gold and silver coins topping off the Austrian economic super hard currency.

 

Once accomplish Putin should shift with 30% going to the military/military industrial complex and the remaining 70% building up the Russian infrastructure along with their portion of the China Silk road trade infrastructure.  This will go a long way to lifting the Russian people’s spirits so much so, I wouldn’t be surprised once the people have faith this is for real a baby boom takes place.

DYI